Monday, March 5

Subprime Conditions

The lower 35-50% of income earners of our country can't get a break in trying to be included in the American Dream. Because of loan policies, often their credit scores do not allow them to qualify for prime-rate loans, meaning that because they are seen as "high risk", they are more likely to be offered subprime interest rates or "programs" like adjustable rate mortgages that balloon after a set period of time.

For example:
•In 2004, John Silva refinanced the modest home he and his wife own in Willow Springs, N.C. Today, with their mortgage at almost 10 percent, he worries he's just a "hiccup" away from foreclosure.

•Ten months ago, newly divorced Tammy Myers got a no-down-payment loan to buy a house in Denver. The interest rate is now so high it's difficult to make her monthly payment.

•Susie Smith – a retired social worker who's too embarrassed to use her real name – almost lost the house in St. Paul, Minn., she had lived in for most of her life. That was after she refinanced it and her monthly payments more than doubled from $675 to more than $1,400 a month.

The API reports that the market for subprime mortgages "exploded during the housing boom, from fewer than 5 percent of all new mortgage loans in 1994 to an estimated 20 percent currently, or $600 billion."

Foreclosures among high-risk U.S. mortgages could create the worst mortgage crisis since the 1980s, a published report said Friday. Rising foreclosures and defaults have pushed more than 20 lending companies into bankruptcy, The Christian Science Monitor says.

Some housing specialists worry the mortgage industry will respond by raising its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out, extending the current U.S. housing slump.

'It`s the most serious threat to the economy,' Mark Zandi of Moody`s says. 'It has the potential to set the housing market back another big notch since there could be a whole class of people who can`t get credit.'

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